iPhone 3G not instilling fear in Apple's music foes

LOS ANGELES--Apple's upgraded iPhone didn't inspire fear in at least two of the biggest subscription music sites--even before they learned that the device wouldn't let people download music via the new 3G network.

"I'm not trembling," Anu Kirk, Rhapsody's director of product management, said Monday at the iHollywood conference. "I'm sure they are going to sell a lot of second-generation iPhones. It's a fantastic product but they can't take over the United States with just one carrier."

Kirk was speaking on a panel discussing the mobile music category and specifically about cell phones as music players. The discussion took place as Apple CEO Steve Jobs was introducing the new iPhone 3G at the Worldwide Developers Conference in San Francisco.

Kirk doesn't think the iPhone 3G can duplicate iPod's success, at least not with just AT&T as the phone's only carrier. Any debate about the iPhone's dominance over music apparently has to wait.

The mobile version of the iTunes music store will remain accessible only over the phone's Wi-Fi connection, according to CNET's Donald Bell, who wrote cited Apple's iPhone 3G product page. Bell wrote that "it does seem like Apple has missed an obvious opportunity to allow users more ways to purchase music."

Rhapsody and Napster already enable many iPhone competitors to download music over 3G. This had to come as welcome news to those companies as rumors swirl in the music industry that Apple is considering whether to launch a subscription service.

In March, the Financial Times reported that Apple is considering an all-you-can-eat plan in which users would receive free access to iTunes "in exchange for paying a premium for its iPod and iPhone devices. Sources told CNET News.com that the music labels would agree if Apple shared revenue on device sales. So far, nothing has come of it.

And nothing will--or at least that's what Kirk thinks anyway. His suspicion is that Apple won't enter the subscription business because it conflicts with the company's prime goal of selling hardware.

"Apple's model is to get you to buy a bigger device every 18 months or two years," Kirk said. "You fill up your iPod, you go, 'Oh, I'm going to buy the new iPod with twice as much memory.' In a subscription world, the size of your device matters a lot less cause you can swap out the content. In a world like that the consumer has a lot less incentive to buy a bigger device."

Subscriptions aside, is Apple choosing to ignore cell phones as music players at this point? It wouldn't be missing out on much.

The U.S. consumer has largely ignored their phones as music machines. Kirk noted that the sector is hobbled by the lack of memory in most phones to store music and the high costs. These often include paying for cell phone and data-service plans on top of the music.

Not what you would call a good deal.

[bousozoku]

I'd think that Rhapsody would be more afraid of their creditors than being afraid of Apple. When you're in a niche of the business, it's tough to be heard or get new business.

I'm sure Apple has some ridiculous agreement with AT&T not to overload their pathetic data network by allowing downloads. Still, if you can find a WiFi hotspot, you can get your downloads then. Considering that movies take longer to download than music, it's probably better that way.

One thing I didn't notice is whether AT&T's Mobile TV will be on iPhone. After all, you're paying extra for 3G data access, shouldn't you get something more from the carrier?

[dascha1]

You'd think that the 'smart' PC maker would actually work harder on .99/gal technology. But, as predicted, they go 2.0 and think ipod fill-ups make money. Leave the money in the consumer's pocket Steve and Apple. Build your own new green rig or partner with a company that has the money to do it.

[NPGMBR]

bousozoku - I'm not so sure. Apple was a niche for many years and they survived. Why can't Real?

[georgiarat]

It is too bad Apple is stuck only with AT&T. I would think that Jobs would understand the need to branch out even at the expense of the revenue model he has with AT&T.

[rturner2]

It would be good if Rhapsody was actually available in Australia (ie. outside the US) - Apple is winning hands down here (for obvious reasons). I would be very keen on a monthly subscription "rental" service.

The best part about iPhone 3G is the price - $199 US for 8GB. I hope us Aussie's are not overcharged for it, considering now that our dollar is at $0.95US.

[rtuinenburg]

Steve, said $199 everywhere. So I am assuming it will be converted to your currency.

[M C]

You mean Rhapsody doesn't fear slipping from a distant also-ran to a more distant also-ran?

Seriously, what is the point of this piece? That random spokesdude from Real can point out one drawback to the iPhone?

[gmon750]

Where the other carriers were snubbing Apple and the phone, AT&T was the only player that gave Apple the freedom it wanted (and needed) to make the phone the success that it is now. Love them or hate them, those two will be joined at the hip for the next four years. After that, it will be interesting to see what will happen.

[Musicvoid]

The reason it is not instilling fear in competitors like Nokia is that the price point for it is still way to high for the "emerging markets". Single carrier deals just drive consumer backlash much as music tracks only being available on one carrier have done.

Nokia sees growth in the emerging markets and that is where 90% of mobile subscriber growth was in 2007. even $199 is to expensive for those markets so until Apple address this fact the current incumbant manufacturers rightly feel no threat to their current market shares.

Check out this post for an in depth analysis of why apple needs to be presenting a viable option for the emerging markets:

http://themusicvoid.wordpress.com/2008/06/04/will-apple%e2%80%99s-iphone-penetrate-the-key-mobile-subscriber-growth-markets-and-therefore-become-a-force-to-be-reckoned-with

Cheers,
Jakomi

[benjaminstraight]

And the competition continues.